Based on a letter sent to U.S. Senator Ron Wyden from FinCEN’s assistant secretary for legislative affairs, anyone that issues an ICO is considered a money transmitter and is subject to the Bank Secrecy Act. This means that they will be required to register as a money services business (MSB) with the federal government, as well as to collect customer information to fulfill know your customer (KYC) requirements and implement compliance programs to combat money laundering and the financing of terrorism.

The letter states that “an exchange that sells ICO coins or tokens, or exchanges them for other virtual currency, fiat currency, or other value that substitutes for currency, would typically also be a money transmitter.” ICOs that are registered as a security, however, will not be considered a money transmitter.

Going forward, anyone who sells tokens to the U.S. residents, fails to register with FinCEN as an MSB, or fails to fulfill their KYC and AML compliance obligations can face fines or even felony convictions that come along with several years of prison time. Even employees and investors of ICO companies could be held criminally liable as well, and charges of wire fraud–which includes using the internet to send money and avoid reporting requirements. A federally related offense, wire fraud is a serious charge that can lead to significant penalties. In November 2017 Western Union was forced to shell out $586 million on these charges.

A blockchain advocacy group is disputing FinCEN’s assessment, particularly how it has classified the roles of miners, who create virtual currency, and developers. The group, called Coin Center, has requested that FinCEN clarify these issues through discussion and consultation, saying “this is a complicated and consequential legal interpretation, and one that should be discussed, unpacked, and eventually finalized in a more formal and transparent setting.”

Although the issue will likely have to be settled in court, anyone selling tokens through an ICO will have to tread carefully in order to protect themselves from potential backlash from FinCEN.

About Anu Sood

Anu Sood (LinkedIn | Twitter) is the Director Marketing at CaseWare RCM and is responsible for the company’s global marketing strategy. She has over 20 years of experience in product development, product management, product marketing, corporate communications, demand generation, content marketing and strategic marketing in high-tech industries.